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William's comment fails to mention the very extensive secured transactions reforms undertaken in the Pacific island economies by the Asian Development Bank and AusAID through the Pacific Private Sector Development Initiative. To date, there have been 7 completed reforms with several more to come. The result has been a significant increase in secured lending, with about 10,000 new loans having being made under the reformed framework. Given the small population of these economies, this is a very large number. Interestingly, finance companies and trade creditors have made significant use of the new system. Banks on the other hand, less so, primarily it seems because they are branches of Australian banks. Many loan decisions have to be approved in Australia and the legal departments of the banks are still not used to the reform.

William's point about the importance of secured loans in reducing risk is correct, although I am not as ready to dismiss asymmetric information as an issue as he is. Consider that if the bank had perfect information, it would be able to reduce its loan amounts as circumstances dictated. Unfortunately, it only learns of adverse developments well after the owners of the business. Furthermore, having pledged assets as security, business owners are less likely to engage in risky behavior.